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Staff Reporter
While the Australian economy continues to rally, problems are starting to show in China.
According to AMP’s chief economist Shane Oliver, Chinese shares are now down eight per cent from their recent highs in February.
In addition, there is concern that new leadership will lead to unnecessary economic reforms.
“The most recent example being tighter regulation with respect to the funding the banks obtain from what are called wealth management products, which further fuelled fears of a sharp slowdown in credit growth,” Mr Oliver said.
“Moves to merge and scrap government departments and reduce bureaucracy have also added to uncertainty.
These developments have fuelled concern regarding Chinese growth. Worries about a property bust have led to renewed concerns about local government financing, given much of their revenue comes from land sales. And property controls, regulatory reforms and talk of monetary tightening have all led to fears of a renewed growth slowdown.”
But despite these concerns, Mr Oliver said China is still on track for growth of around eight per cent.
“No 10 per cent-plus growth boom, but no bust either,” he said.
Meanwhile, Australia has seen a good set of data, with retail sales rising by more than one per cent for the second month in a row in February, building approvals gaining 3.1 per cent and the AIG's services sector conditions index gaining for the third month in a row.
“These indicators provide more evidence that interest rate cuts are getting traction in the economy. In particular, the strengthening in retail sales suggests that strong consumer confidence is resulting in increased spending,” Mr Oliver said.
“Right now the evidence suggests that we are either at or very close to the bottom for interest rates.”
